David Beckworth put the entire matter of low Interest rates in proper form for a good grasp of the situation. It is exactly the rest of the problem which causes the trouble. Low Interest rates monetary policy will only continue the level of risk bearing, while Compensation packages left the same will continue to defeat Returns to Shareholders; adequate Investment Returns to Stockholders mean less capital to gain Compensation from investment issuances. There has been a continuous movement in the last 30 years to circumvent the property rights of Stockholders. All Corporate entities retain vastly increased Capital reserves without distribution as Dividends, managing to engender ever-higher Compensation to Management. Information to Stockholders has been ever more stringently meager, while Courts have granted allowance to Management teams to ignore even majority Stockholder demands. Corporate managers have even gone so far as to hide their Records overseas, simply to deny even Government entities supervision of their activities. We have a runaway Corporate mentality, acting only upon their own impulses, within the cultural vacuum of their own society. Their control of the majority of capital assets of Production makes the situation increasingly serious, when the normal Response controls have been upset.
Study these Charts for a while. One of the great reasons there is expected higher Interest rates lies in the Corporate structure; who visualize threat to the above state, with the resulting fall in Compensation packages. One of the things not specifically mentioned among these Charts consists of the desired expectation that falling Wages should suppress Inflation, not any control of Prices. Expected Inflation was high in early 2009 simply because most of the business managers expected a fall in Prices, which did not happen; all basically stemming from the ‘No Interest’ monetary policy of the Fed. The later organization saved high Prices by the destruction of primary Investment schedules through a systematic lack of Return. This both channeled investment funds to high-risk bearing financial instruments with huge levels of Compensation for Issuers, and saved Corporate Profits. The fact that it also destroyed much of the Consumption capacity in the developed World made little difference, except that Consumers are not returning to the Retail outlets at the speed desired. This is where We stand today.
China has broken with the triage of central banks to the financial crisis, though it might not seem like a very valiant surge. This style of reaction can be considered typical of Chinese policy, which always seeks to initially mystify; little discussion given until the change of policy is in place. I would look for new restrictions on foreign capital, enjoined restrictions from purchasing abroad, a forced rise in tariff revenues, and cutbacks in exit visas for Chinese to move freely to foreign destinations. I would bet that Chinese will be forbidden to privately store Capital in foreign financial entities, insisting that all funds be returned to domestic soil–at least Chinese banks. This retreat to autarky will be based on Chinese assumption that their extended economy can generate their domestic needs, without the pressures of foreign consumption practices being allowed introduction. This will be another crimp in the World recovery from the last Crisis. lgl